EU Regulatory Bulletin contents

On 5 June 2012, the final version of the Commission Guidelines on State aid measures in the context of the greenhouse gas emission allowance trading scheme post-2012 was published in the Official Journal.

ETS Directive

Directive 2003/87 ("the ETS Directive") established a scheme for greenhouse gas emission allowance trading within the EU, which was improved and extended in 2009 with effect from 2013. The ETS Directive is part of a legislative package designed to achieve an overall environmental target of a 20% reduction in greenhouse gas emissions compared to 1990 and a 20% share of renewable energy in the EU's total energy consumption by 2020. This means that electricity bills for companies in the EU are expected to increase as a result of the stricter cap under the ETS post 2012.

ETS Reform & State Aid measures

The guidelines set out the criteria for State aid measures which will be introduced to compensate for the changes which will take place following the introduction of the ETS reform in 2013. The State aid measures include: (1) aid to compensate electro-intensive users for increases in electricity prices; (2) investment aid to highly efficient power plants; (3) aid to grant transitional free allowances for modernisation of electricity generation; and (4) the exclusion of certain small installations from the Energy Trading Scheme if greenhouse gas emission reductions can be achieved outside of the scheme at lower administrative costs.

Carbon Leakage

The aim of those new rules is to mitigate the impact of indirect CO² costs for the most vulnerable industries, thereby preventing carbon leakage (1), while minimising competition distortions in the internal market.

The Commission notably identified a certain number of sectors that are deemed to be at a significant risk of carbon leakage, on the basis of Eurostat data collected from Member States and input from public consultations. The sectors deemed eligible for compensation include producers of aluminium, copper, fertilisers, steel, paper, cotton, chemicals and some plastics. If the conditions set out in the guidelines are met, aid to compensate for EU ETS allowance costs passed on to electricity prices in these sectors will be considered compatible with the internal market.

It could be questioned whether Eurostat data from Member States was appropriate for this selection of sectors as it might not be relevant for certain sectors. Additionally, the list of eligible sectors adopted by the Commission in the guidelines in fact narrows the list which was previously provided by the Commission in Decision 2010/2[2] and

which identified sectors and subsectors which are deemed to be exposed to a significant risk of carbon leakage, within the framework of the ETS Directive. Therefore, it is questionable whether such list adopted by a Commission Decision could be modified through guidelines which, in principle, are not legally binding. Indeed, although the Commission is in principle bound to follow its own guidelines, they are not legally binding for the Member States, according to the case-law of the Court of Justice.(2)

(1) Carbon leakage means that global greenhouse gas emissions increase when companies in the EU shift production outside the EU because they cannot pass on the cost increases induced by the ETS to their customers without a significant loss of market share to third country competitors.

(2) Commission Decision 2010/2/EU of 24 December 2009 determining, pursuant to Directive 2003/87/EC of the European Parliament and of the Council, a list of sectors and subsectors which are deemed to be exposed to a significant risk of carbon leakage.